It's looking more and more like reports of the disastrous effects of competition that were to befall the debt collections industry were way overdone. The first hint came last week when Motley Fool Hidden Gems selection Portfolio Recovery Associates
After reading through the transcript for the company's conference call, I think that in the long term Asta Funding should do well because it's disciplined in its purchases, collections, and in some cases sales of debt. Perhaps the most important part of the three is how much the company pays for its paper and the quality of the paper. In addition, Asta's lean business model allows it to be flexible during slow times and ramp up quickly during busy times, because it relies a great deal on third parties for the actual telephone call and direct mail collection activity.
For full-year fiscal 2005, that outsourcing model led to diluted earnings per share growth of 36.9% and a dividend increase of 14%. So far this quarter, the company has also purchased $970 million in face value of debt for $48 million (i.e., a little less than five cents on the dollar) and, like Portfolio Recovery Associates, it sees other purchases on the horizon.
Investors liked the news of Asta Funding's brighter prospects, bidding its shares up more than 3.5% in Tuesday's midday trading. Despite today's price run-up, the company's shares still look reasonably priced, particularly when you consider the long-term growth rates of bad debt collections and the leanness of Asta's business model. The same can also be said for Asset Acceptance Capital
For related bad-debt Foolishness:
Fools, now is the time to open your hearts and wallets to worthy causes! Please support our five Foolish charities at www.foolanthropy.com .